Glossary
| anti-martingale system | a position sizing strategy that involves increasing position sizes as profits are made. See also martingale system |
| average true range (ATR) | the average of the ‘true range’ of price over a given period. The given period can be varied. See also true range |
| bad fill | occurs when a trade is entered or exited at a price different from that specified as a result of slippage |
| bear/bearish | a trader or investor who believes asset prices will continue to fall |
| bear market | a market with declining prices |
| black box system | a method of trading whereby the actual reasons for the trades are never known by the purchaser of the system |
| broker | a company or individual who executes buy and sell orders on behalf of clients |
| bull/bullish | a trader or investor who believes asset prices will continue to rise |
| bull market | a market with rising prices |
| busted trade | trades cancelled by an exchange if they are considered ‘unfair’ or not a true reflection of the prevailing market price |
| capital gains tax (CGT) | a tax due on profits realised on the sale of a capital asset, such as shares, bonds or real estate. Long-term gains on assets you own for longer than a year are taxed at a lower rate than ordinary income, while short-term gains are taxed at your regular rate. Assets held for over five years may be taxed at an even lower capital gains rate |
| commodities | physical products that are traded at a futures exchange such as grains, metals and meats |
| conditional orders | a buy or sell order that requires a specific set of conditions to occur before it becomes active in the market. These conditions may be price, time and volume related |
| contracts for difference (CFDs) | a share derivative allowing shares to be traded on margin |
| curve fitting | adapting a trading strategy to ‘best fit’ the historical data. This often produces performance results that are not able to be replicated into the future using actual prices and market conditions |
| day trader | any trader who consistently opens and closes positions on the same day |
| dividend yield | the theoretical return on an investment. It is calculated by dividing the dividend per share by the current share price, expressed as a percentage |
| dollar cost averaging | the practice of investing a fixed dollar amount at regular intervals (such as monthly) in a particular investment or portfolio, regardless of its price |
| drawdown | the amount of money lost on a losing trade, expressed as a percentage of your total trading equity |
| e-mini futures contracts | an electronically traded futures contract on the Chicago Mercantile Exchange that represents a portion of the normal futures contract. For example, the e-mini S&P500 futures contract is one-fifth the size of the standard S&P500 futures contract |
| exchange traded fund (ETF) | an investment vehicle traded on stock exchanges, much like stocks. An ETF holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets. Most ETFs track an index |
| exit point | a predefined point at which a trade will be exited |
| fat fingers | a colloquial expression used to describe the incorrect entry of quantity or price when placing a buy or sell order |
| foreign exchange market (Forex) | the simultaneous purchase or sale of one currency against the purchase or sale of another |
| futures contract | an agreement to buy or sell a commodity or financial instrument at a specific price on or before a future date. These contracts are standardised according to the quality, quantity, delivery time and location; the only variable is price. Futures contracts are traded on various futures exchanges around the world |
| gearing | borrowing money to supplement existing funds in such a way that the potential positive or negative outcome is magnified and/or enhanced. It generally relates to using borrowed funds, or debt, to attempt to increase returns |
| indicators | mathematical combinations of price, volume and time parameters to aid in the technical analysis of financial instruments. Examples include moving averages, stochastic, relative strength and many others |
| intermarket spread | the simultaneous sale or purchase of a given delivery month of a futures contract on one exchange, and the simultaneous sale or purchase of the same delivery month of a futures contract on another exchange. For example, buying Chicago Board of Trade wheat, and selling Kansas Board of Trade wheat |
| intraday price swing | price movements within each trading day |
| investor | one who purchases an asset in the expectation of making a financial gain over the longer term |
| leverage | using small amounts of capital to control larger amounts of an asset. Using derivatives provides leverage |
| loan-to-value ratio (LVR) long/going long | The ratio of the loan amount for an asset to the market value expressed as a percentage buying shares or other assets in anticipation of a further increase in price. The assets can then be sold for a profit |
| margin | the amount of capital required to implement a trade in a derivative product |
| market if touched | an order to purchase or sell a security at the next available price as soon as a specific price is reached |
| martingale system | a position sizing strategy that involves increasing position sizes as losses are made. The classic model involves doubling the position size each time a losing event occurs. Normally used by gamblers. See also antimartingale system |
| mechanical trading system | a specific set of rules that determine buy and sell decisions with the intention of removing emotion from both the decision-making and order execution process |
| moving average | a simple, or arithmetic, moving average is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods |
| moving average convergence divergence (MACD) | a trend-following momentum indicator that shows the relationship between two moving averages of prices |
| overtrading | excessive trading activity |
| position sizing | the number of shares, contracts or other instruments you will buy or sell. It is a function of risk profile, available capital and volatility |
| price-to-earnings ratio | calculated by dividing the share price by earnings per share. Used in fundamental analysis |
| profit target | a predefined exit target at which profits will be taken on a trade |
| R-multiple | profits expressed as a multiple of the initial risk. A 10-R multiple (sometimes referred to as a 10-bagger) is a profit that is 10 times the initial risk |
| R-value | the initial risk taken on any trade defined by the stop-loss |
| relative strength indicator (RSI) | an indicator based on the close-to-close price range that can be used to determine overbought and oversold conditions |
| short/selling short | selling shares or other assets you don’t own in anticipation of a further fall in price. The assets can then be bought back again to cover the short position and a profit made |
| slippage | the difference between the price at which you expect to enter or exit the market and your actual fill price. For example, you may attempt to buy at $20 and be filled at $21 — this is a $1 slippage |
| spread order/spread trade | simultaneously buying one asset or trading instrument and selling another |
| stochastic oscillator | a technical indicator which compares the closing price to its price range over a given period of time. The belief is that in a rising market, prices will close near their highs, while in a falling market they will close near their lows |
| stock market index | a method of measuring a section of the stock market |
| stop and reverse | a trading method whereby trades are reversed when the initial trade is stopped out. For example, a trader who is long and gets stopped out immediately reverses the trade, and is now short |
| stop-loss | the price at which a trade will be exited if it fails to work out as anticipated. It is a risk management tool used to stop the losses from an open trade |
| system expectancy | how much you expect to make on average over many trades |
| target shooter concept | a method used by Larry Williams to calculate exits points for profitable trades. It is a feature of Trade Navigator software |
| thin market | a market with a low number of buyers and sellers. Prices are often more volatile and assets are less liquid. There is a larger spread between the bid and the offer price |
| tick chart | displays the minimum price moves (ticks) of a share or futures contract. Used by intraday traders |
| trader | someone who buys and sells financial instruments such as stocks, bonds and derivatives. Traders usually aim to catch shorter term price movements than an investor |
| trading system | a set of rules, including entry and exit points, money management and risk management rules for engaging the markets |
| trailing stop | the price at which you will exit a profitable trade that eventually reverses. The trailing stop price moves in line with the prevailing price trend |
| true range | developed by Welles Wilder, this indicator is a great tool for measuring volatility over a set period of time. It is defined as the best indicator of the distance from:
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| volatility | a measure of the magnitude or speed of a price move over a given period of time. A market with high volatility will have large daily price ranges, while a market with low volatility will have small ranges of daily price |